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Forex today was seeing a mixed dollar after ECB President Draghi’s economic update to the EU Parliament sent the euro through 1.18 temporarily on hawkish rhetoric, signalling the ECB’s forward intentions  when he explained that “a relatively vigorous pick-up in underlying inflation” was underway, underscoring an improving labour market and signs of shortages, supporting the ECB’s expectations of higher wages.

EUR/USD jumped from 1.1750 to 1.1815 – a three-month high – on Draghi’s speech. However completely retraced a few hours later, as ECB chief undercuts his own bullish comments on inflation with warnings over potential effects from protectionism, and also perhaps due to the unease surrounding Italy’s fiscal plans and indeed ahead of the FOMC later this week. The DXY ended flat around 94.20 making for a doji on the daily sticks while the US 10yr treasury yield made a four-month high at 3.09% and the Fed sensitive 2yr yields hit 2.83% to make a fresh high since 2008. The Fed fund futures yields continued to price 100% chance of a hike on Wednesday, while the chance of another hike in Dec is priced at 90%. There is marked attention on the CNH right now with it slipping back after a number of sessions on the offensive – this could be a factor that continues to play out into the FOMC that could well weigh on the commodity-complex when oil is stripped out of the models. However, for the meantime, the CRB hits the best level in almost 2 months due to dwindling supply from Iran and Venezuela. Elsewhere, China canceling trade talks with U.S. is a risk for the week ahead while the Trump administration is likely to up the ante in retaliation after already imposing tariffs on another $200 Bln of imports.  

Currency action

As for the currencies, the euro as mentioned was a round trip on the day and traded mostly on the offer in NY but was still up small late in the day, drifting back to 1.1744 and closing at 1.1748. Sterling was bid to 1.3167 in London on  Brexit minister Raab confidence of a deal, vs the weekend sentiment and talk of a Q4 election and possible referendum again over Brexit. Cable drifted into NY on the downside with profit taking as the dollar firmed a touch and US yields inched higher. GBP/USD closed NY at 1.3120.  The cross was uneventful, trapped between cable and euro flows ranging between 0.8935 and 0.8978 in European trade to drift lower from the London high to just 0.8954 and closing at 0.8955. USD/JPY was climbing from 112.50 to 112.75 due to US bond yields and despite weaker US stocks. However, the pair is fragile on the back of the Rosenstein resignation stories and the pair was anchored and shadows were left in early Asia attempting higher highs at 112.77. the BoJ minutes were same-same and there was no reaction in the yen. As for the Aussie, the pair is struggling to maintain its bullish form with a dip in the CNH and concerns over Chinese economy/trade wars coming back to the fore. the pair was ranged between 0.7255/80  in NY range but copper was supporting on dips as was the oil price with the CBR index up to fresh highs. AUD/USD closed at 0.7253 and ended heavy around the 23.6fib of the recent corrective rally to 0.7305.  

Key notes from the US session:

Wall Street closes in red dragged by trade fears & US political drama